Trade-based financial crimes encompass a wide range of illicit activities that exploit the global trade system for nefarious purposes. At the forefront of these crimes are trade-based money laundering (TBML) and trade-based terrorist financing (TBTF).
TBML involves the intricate process of disguising the origins of illegal funds and legitimizing them through trade transactions, while TBTF utilizes trade mechanisms to finance terrorist activities, whether the funds are obtained from lawful or unlawful sources. These sophisticated schemes often involve the manipulation of invoices, misrepresentation of products, and violations of customs and tax laws, creating a complex web that hampers detection and intervention by authorities and financial institutions.
By delving deeper into the nature of these trade-based financial crimes, we can better equip ourselves to combat and dismantle these illicit networks, safeguarding the integrity of global trade and the stability of financial systems.
Trade exploitation presents opportunities for criminals, such as money launderers and terrorist financiers to frustrate identification and intervention by authorities and financial institutions. It may support a broad range of various illicit financial transactions, including capital flight, customs violations, and tax and sanctions evasions.
Trade-Based Financial Crimes: Money Laundering and Terrorist Financing
Trade-based Money Laundering (TBML):
TBML is defined as a process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illegal origin or finance their activities.
The primary aim of TBML activities is the deliberate movement of illicit proceeds through the exploitation of trade transactions.
The criminals may engage in a range of other potentially unlawful transactions, such as preparing false or fake commercial invoices, mischaracterizing the products to circumvent TBML controls, and customs and tax laws violations. The aim of TBML unlike trade-related predicate offenses is not the movement of products, but rather the movement of funds, which the trade transactions usually facilitate.
Another key distinction of TBML activities may be the involvement of actual criminals, who have a previous record of corruption, money laundering, or other financial crimes. The criminals perpetrating trade-related predicate offenses are usually the ultimate beneficiaries of such illicit funds or money.
The criminals take receipt of the proceeds on behalf of other stakeholders, and transfer those proceeds, before passing them to the beneficiary. Criminals deduct the fee or commission.
Trade-Based Terrorist Financing (TBTF):
The TBTF activities use the same trade processes as TBML but have a significant and fundamental difference. The proceeds or value moved may come from both legitimate and illegitimate sources, increasing the complexity of detecting and disrupting TBTF.
As such, the report defines TBTF as “disguising the movement of value through the use of trade transactions in an attempt to finance terrorism, whether from legitimate or illegitimate sources”.
The additional layers of complexity in detecting TBTF identify some aspects of TBTF that may help authorities to strengthen their understanding of TBTF schemes.
Trade exploitation has become a fertile ground for criminals, enabling them to exploit trade transactions for money laundering and terrorist financing purposes. TBML and TBTF pose significant challenges to the identification and intervention efforts of authorities and financial institutions. Understanding the nature and intricacies of these trade-based financial crimes is paramount in developing effective strategies to combat and mitigate their impact on global financial systems.